VAT Tribunal rules £8.5m Import VAT irrecoverable for non-owner of goods
The recent TSI Instruments Limited (TSI) v HMRC case could have significant implications for business leaders, especially those involved in importing goods for repair, servicing or processing.
The VAT First-tier Tribunal (FTT) has again agreed with HMRC that import VAT cannot be recovered where the importer does not own the goods at the time of import.
In this case, the Taxpayer, TSI, imported scientific equipment owned by other group companies for repair and calibration. It did not take ownership of the goods in question. TSI had acted as importer of record and had recovered the associated import VAT of c£8.5m. HMRC raised an assessment to recover this amount, on the basis that the import VAT had been incorrectly recovered as TSI did not own the goods at the time of import.
In the FTT, TSI argued that the import VAT was recoverable as there was a direct and immediate link between the costs of importation and TSI’s taxable repair services. The FTT disagreed, finding that the cost or value of the imported goods was not reflected in the price of the repairs carried out by TSI and, as TSI did not own the goods, the import VAT was irrecoverable.
What does this mean for businesses?
This case reinforces HMRC’s position that ownership is central to VAT recovery on imports and the significant amounts of VAT that can be at risk.
Businesses importing goods they do not legally own should consider using Inward Processing Relief (IPR) to avoid incurring significant irrecoverable VAT charges or arranging for the owner to be the importer, to ensure VAT recovery is possible. However, this solution might not be attractive to overseas clients.
Considerations for businesses
The below are some considerations to make when importing goods to ensure correct processes and systems are in place for VAT:
- VAT recovery risks for non-owners - you could face unexpected and irrecoverable VAT costs unless you restructure how goods are imported.
- Review import practices - revise procedures and update contracts with overseas clients to reflect correct importer details.
- Contractual and commercial adjustments - ensure contracts clearly define ownership, responsibility and VAT obligations in line with UK VAT law.
- Increased scrutiny from HMRC - expect closer reviews of import declarations and VAT recovery claims. Be proactive in documentation and risk management.
- Strategic considerations - review supply chain and operational models to avoid VAT inefficiencies.
We’re here to help
We can help ensure you are compliant with UK VAT legislation for importing and efficiently recover VAT for your business. If you would like to discuss your VAT systems and import processes to ensure they are optimised, please contact one of our VAT specialists today.
